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University of Twente Student ThesesDälken, F (2014) Are Porter’s Five Competitive Forces still Applicable? A Critical Examination concerning the Relevance for Today’s Business.
Repository Staff Only: item control page This is the only guide you'll ever need for Porter's Five Forces with guides, examples and more... Porter's Five Forces is a framework to analyse the potential profitability of a marketplace. It was invented by Michael Porter in 1979 and has been used consistently by thousands of companies across the world since originally being published. Five Forces looks at five key areas in a market that impact your price and profitability. The forces analysed are:
Each of the above is rated High, Medium or Low. Ideally, you want all forces to be low. This gives you the most flexibility and control. If every force is high, you have some issues and need to take action in order to improve your position and profitability. In this guide we'll answer the common questions about Five Forces, look at how to create a Five Forces model for your business, provide a video on the process, cite examples, and look at how some people extend to a sixth force. It's the ultimate way to understand the profitability of your marketplace. Beginner Guide to Five ForcesLink: An Introduction to Porter’s Five Forces Analysis This is the best place to start if you're new to Five Forces and haven't heard of the model before. It's a great introduction article that covers all the common questions and topics around Five Forces to get you up to speed before you begin to perform the analysis on your own company. The resource covers:
If you've used Five Forces before then you can skip this resource and continue through the guide, but if this is the first time you've encountered the model be sure to check out this introduction article: Creating a Five Forces AnalysisLink: Create a Porter's Five Forces in 6 Steps There is also the video will take you through developing your own Five Forces model. At the end of it you'll have a list of areas holding your growth back, risks that impact your company, and considerations for the future. It's a really effective toolkit and one that all companies should use at some point to inform their strategic decisions. Five Forces is a framework to analyse one marketplace, so you may want to run this model a few times if you're in different markets or provide different products. This article will help you produce the best possible Five Forces, putting you in a great position to move the business forward and address your market challenges. ## Porter’s Five Forces Examples Every Five Forces Analysis is different because it's always very specific to a market. Despite this, examples always help you consider factors in your own market. There may be shared attributes with your industry or it may stimulate your own thinking. It's always worth looking at previous work people have done if you're about to do a Five Forces. You'll find many examples in Lucidity, of course, but we've also pulled together some different resources: [The Body Shop:](/strategy-resources/spotlight-the-body-shop-strategy-considerations) [Leisure Centre:](/strategy-resources/spotlight-leisure-centre-strategy) [Mars Confectionery:](/strategy-resources/spotlight-mars-confectionery-maltesers-strategy) [eBay:](/strategy-resources/ebay-strategy) [IKEA:](/strategy-resources/spotlight-ikea-uk-strategy) [easyJet:](/strategy-resources/spotlight-easyjet-strategic-analysis) As you go through these examples consider how each one is rated High, Medium, or Low. What similarities are there with your own markets, and are you comfortable with how you rate your own forces? ## Five Forces Toolkits There are a number of ways you can map out your Five Forces Analysis, despite the somewhat unusual diagram normally associated with the model. It often looks like this image: ![Empty Porters Five Forces](https://getlucidity.com/wp-content/uploads/2021/03/Five-Forces-Analysis.png) **Word & Excel:** **PowerPoint:** **Whiteboard:** **Five Forces Software:** [![Porters Five Forces Interactive Tool in Lucidity Strategy Software](https://getlucidity.com/wp-content/uploads/2021/11/ToolCTA_FiveForces.png "Porters Five Forces Interactive Tool in Lucidity Strategy Software")](https://getlucidity.com/demo/ "Porters Five Forces Interactive Tool in Lucidity Strategy Software") ## Five Forces Video Guide: We understand sometimes it's easier to watch a 3-minute video than read a whole guide, so we've done exactly that. The below video includes: We're working on an IMAX version coming to your local cinema... ## Five Tips on Five Forces There's a strong theme of the number five today, so here are five top tips around completing Five Forces… “The basic idea of the competitive forces starts with the notion that competition is often looked at too narrowly by managers. Five Forces say yes,
you’re competing with your direct competitors, but you're also in a fight for profits with a broader extended set of competitors - customers, suppliers, new entrants, substitutes.” “The thing to remember is that Porters Five Forces is all about understanding likely profitability in a marketplace. Once you appreciate that, its a great tool to understand the pressures going on within a marketplace and how you can mitigate those things - through
product development, pricing strategies, buying strategies, marketing activity etc and of course these ideas end up in your strategy and help you move forward and grow.” “Five Forces is detailed enough to really identify your weakest points in a market and so helps you plan on how to adapt and improve. Make sure you involve people from across the business as the 5 forces are distinct and you need input on each one to really nail this analysis.” "I take all new marketing team members through a Five Forces analysis of our marketplace when they join the company. It's a very quick way of helping them to understand the environment we're operating within. Of particular importance for the marketing team is the competitive rivalry force. A marketer needs to understand how competitors interact and co-exist within their space so they can devise the right marketing strategies and tactics to bring success. For example, you cannot get
your positioning and messaging right without understanding how competitors differentiate themselves. Also, a marketer needs to know if they are defending market-share or trying to win it - the tactics will be different! They need to know if there are lots of other providers in the space and how easy and commonplace is it for customers to switch between them - that will influence how they allocate budget and focus between retention campaigns and lead generation. The list goes on!" "Five Forces is a model easily understood and frequently used by business students. It’s a popular tool for analysis of a marketplace precisely because of its ease of use. Breaking down the analysis into these five different components makes the task of assessing the viability of a marketplace less daunting and more easily managed. Of course, using the model in an academic setting is one thing, but if Five Forces is going to be a useful tool to inform a business’ strategic plan,
then it’s important to book in a follow-up session with your leadership team and go through each section of the model discussing where there may be opportunities, where you need to strengthen your product or service, where you need to focus your marketing efforts and where you need to make changes to capitalise on any growth potential." ## Full List of Five Forces Factors To help kickstart your analysis on Five Forces here’s a list of the factors you should be considering. **Competitive Strategy / Rivalry** **Power of Buyers** **Power of Suppliers** **Threat of New Entrants** **Threat of Substitution** ## Real Life Usage – Diversification with Five Forces Link: [Diversification Strategy
Guide](/strategy-resources/diversification-strategy-guide) Five Forces can be a great tool when you’re looking at markets to diversify into, as alongside Porter’s Three Tests you’ll find them a helpful way to establish the profitability of the potential market. If you’re considering diversification then check out this resource and also watch the webinar that discusses the process. ## Adding A Sixth Force to Five Forces There's a model used to extend Five Forces imaginatively called Six Forces. It looks at something called Complementor Products, these are other products or services that directly impact your own. The common example being if Apple release a new iPhone, any business that produces iPhone cases is impacted positives (more sales) and negatively (new design required). There are a couple of articles that will help you think about the Six Forces. Link:
[Introduction to Six Forces](/strategy-resources/introduction-to-the-six-forces-model) Link: [How to create a Six Forces Analysis](/strategy-resources/how-to-create-a-six-forces-analysis) Six Forces isn't as popular as Five Forces but it can be a more useful model depending on your market. Consider which may be best for you before you embark on the analysis. ## Summary This concludes our guide to Five Forces and Six Forces, some of the most effective ways to examine the factors that impact your marketplace. Work through our own versions of Five Forces and see how many are High, Medium, or Low. Are you in a strong position or a weak position? Feed your results into your [SWOT Analysis](/strategy-resources/ultimate-guide-to-swot-analysis) and, together with [PESTLE Analysis](/strategy-resources/ultimate-guide-to-pestle), you'll have an extensive look at your marketplace. [![Download the Porter's Five Forces Handbook](https://getlucidity.com/wp-content/uploads/2021/12/A8-Porters-Five-Forces-CTA-revised.png)](https://getlucidity.com/strategy-downloads/porters-five-forces-handbook/ "Download the Porter's Five Forces Handbook") What is a drawback of the five forces model?Another big drawback is the tendency to try to use the five forces to analyze an individual company, versus a broad industry, which is how the framework was intended. Also problematic is that the framework is structured so that each company is placed in one industry group when some companies straddle several.
What is Porter's 5 forces analysis example?Examples: High barrier to entry and high exit barrier (for example, telecommunications, energy) High barrier to entry and low exit barrier (for example, consulting, education) Low barrier to entry and high exit barrier (for example, hotels, ironworks)
What are the five most common threats that are included within the five forces framework?According to Porter, there are five forces that represent the key sources of competitive pressure within an industry They are:. Competitive Rivalry.. Supplier Power.. Buyer Power.. Threat of Substitution.. Threat of New Entry.. What are barriers to entry in Porter's 5 forces?Examples of barriers to entry are the need for economies of scale, high customer loyalty for existing brands, large capital requirements (e.g. large investments in marketing or R&D), the need for cumulative experience, government policies, and limited access to distribution channels.
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